WHY SO HAPPY? John Haggerty Jr., here after his arraignment yesterday, allegedly took funds entrusted and used them to buy this home. Photo: Steven Hirsch

One of Mayor Bloomberg’s most trusted campaign aides was indicted yesterday on grand-larceny charges and accused of concocting a $1.1 million phantom Election Day poll-watching operation and forging backdated checks in a bid to prove it existed.

Manhattan District Attorney Cyrus Vance Jr. said veteran Republican operative John Haggerty Jr. didn’t spend a dime of the money entrusted to him by Bloomberg on legitimate expenses, but instead used the windfall to buy out his brother’s share of a $1.8 million mansion in Forest Hills, Queens, left to them by their father.

“You may be asking yourselves how John Haggerty managed to dupe Mayor Michael Bloomberg, his staff and his advisers, a group of highly educated, sophisticated people,” Vance said yesterday. “To put it simply, they trusted him.”

The DA’s investigation was launched following a series of stories in The Post that exposed suspicious spending activity.

Vance credited The Post with setting off the investigation.

“I’d like to say I learned about it in The Post,” he said.

Sources said Bloomberg and Haggerty had been so close that when his father, legendary Albany power broker John Haggerty Sr., died in 2008, the mayor attended the wake.

One source said he thought that if Haggerty Jr, who refused salaries in both the 2005 and 2009 campaigns, had simply asked the mayor for the money, he might have gotten it.

“There’s no denying the two were tight,” the source said. “That’s what makes this so baffling.”

Vance charged that Haggerty betrayed that trust in spectacular fashion, dreaming up a daring scheme to swindle Bloomberg by proposing to spend nearly $1.1 million on poll watchers and ballot security and securing the money through the state Independence Party so it wouldn’t show up in public filings until January.

Haggerty drew up a plan that called for 1,355 “stationary” poll watchers, 200 “mobile” poll-watching teams, 230 drivers, $310,000 for a seven-person staff, as well as Nextel walkie-talkie rentals and other ballot-security services, according to the indictment.

As Election Day drew near, he pressed for payment, claiming he had engaged vendors.

Bloomberg sent $1.2 million in two wire transfers on Oct. 30 and Nov. 2, allowing the Independence Party to keep $100,000 for acting as the agent. But Vance said that there were no vendors and that the poll-watching operation was a complete fiction.

“The defendant’s fraud was an audacious scheme to steal funds in order to buy a house, cynically using our political party process to hide what was common thievery,” the DA said.

The indictment reported that Haggerty set up a company, Special Election Operations LLC, to disperse the poll-watching payments a month after the Nov. 3 election.

Between Nov. 24 and Dec. 11, the Independence Party wired $883,000 from its housekeeping account to Haggerty and his secretive company after receiving what authorities described as a “troublingly bare invoice.”

Haggerty immediately placed an $80,000 down payment on his family home at 115 Greenway North.

Within days, he paid his brother Bart another $102,000 and sent $546,545 to the law firm handling the estate, Gallagher Walker Bianco & Plastaras.

Strangely, no one at the Bloomberg campaign asked for an accounting until The Post began raising questions in late January about who was behind Special Election Operations, the name of which had surfaced in public filings.

The mayor’s campaign aides eventually coughed up Haggerty’s name and, based on information he provided, said 300 poll watchers had been hired in a routine effort that mirrored one in 2005.

When The Post requested proof of an Election Day operation, Haggerty forwarded copies of three checks for $500 each made out to three individuals, including Tom Sipp, a lawyer who is the brother of J.P. Sipp, the Staten Island Republican commissioner on the city Board of Elections.

The three testified before a grand jury that they never expected to be paid for working on Election Day and still hadn’t been.

Vance said the checks, dated Dec. 20, 2009, were actually written in 2010 and never cashed.

Following The Post’s inquiry, Haggerty decided to return $133,000 of the $750,000 in the Special Elections Operations account on Feb. 1.

The DA is pursuing civil action to recover the $1.1 million.

He said the investigation was continuing and suggested the Independence Party, which isn’t cooperating, wasn’t off the hook. A footnote in the indictment said party officials kept “a portion of the stolen funds.”

Haggerty pleaded not guilty and was released without bail.

His lawyer, Raymond Castello, suggested his defense would be that he devoted “hundreds of hours” to ballot security before Election Day and therefore earned what he’s accused of pilfering.

Bloomberg, who spent $108 million to get re-elected, said he had been asked by the DA not to comment on the case, but he testily defended his contributions to the Independence Party.

“I have a right to make donations to support people in the parties that I think will help this city and this country and this state, and I’ll continue to do it, and you have exactly the same opportunity to do it, and I can only tell you I will never criticize you for doing whatever you think is good,” he said.